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Captive Formation

Keep in mind that a captive is not the right solution in every case.  The process of vetting a captive as an option requires experience and expertise of a firm with an objective perspective. An independent advisor like MSG will assist a client in determining whether a captive is the right solution for their business. MSG will take a detailed look at every stage in the captive insurance process – from establishing the viability of a captive option for a client through setting up and managing the company. 

Step one is to determine the likely captive structure. There are many different types of captives such as Single-parent, 831(b), Association, Risk retention groups, Protected cell, Rent-a-captive, and so on. No matter which format is best suited for a company, there are three key elements that the federal government states must exist:

  • 1. The arrangement must involve the existence of "insurance risk."
  • 2. There needs to be both risk shifting and risk distribution.
  • 3. The captive exists to provide "insurance" in its commonly accepted sense

Conduct a Feasibility Study

Having a captive feasibility study completed is next. MSG will review the feasibility study of a company’s risk profile, which includes actuarial reports, investment models, insurance market conditions and an assessment of regulatory, legal and tax issues. This will allow us to recommend risk management options for the client and establishes whether or not a captive makes sense. Not all domiciles require a captive feasibility study, however any company considering a captive should have one completed. The study provides detailed information allowing the organization to make an informed decision as to whether a captive program will be beneficial or not.

Retain a Captive Manager and Professional Team

The majority of captives operate using a captive manager. The captive manager a key role in the formation, development, and overall success of the captive. While MSG and the captive manager may not be experts in all of these issues, we will work with our relationships to assist your organization in securing the right professional partnerships. MSG will be your advisor on the selection, review and hiring of service providers related to the creation of the captive. This includes such, attorneys, actuaries, investment managers, banks, claims administrators, tax professionals and auditors.  negotiate arrangements for fronting and reinsurance; handle license applications; and execute agreements. MSG will work closely with the client, broker and regulatory authorities to ensure timely and accurate completion of all necessary documentation.

Select a Domicile

Service providers may have a vested in interest in how and where your captive is domiciled. MSG’s independence ensures that the all options selected, including  the choice of domicile will always be solely based around our client’s needs, not compensation. There are more than 70 captive domiciles around the world.  When choosing which one is right, factors to consider include regulatory environment,  tax implications, operational costs and proximity to the company’s headquarters. Equally important to the success of a captive insurance company is selecting the best domicile for the captive.

Prepare a Submission of a Captive Application

Once the feasibility study is completed, a captive manager and a domicile selected, we will begin the process of setting up the captive. The captive formation procedures will vary based on the complexity of the requirements of the parent organization, the type of structure being set up and the regulatory framework of the chosen domicile.

Continuing Captive Management

Once the captive is in place, MSG does not walk away.  We help to ensure the new captive functions optimally. Our day-to-day captive management services include review of:

  • Maintenance of Captive Insurance Policies & Premiums
  • Coordination of Third-Party Service Providers
  • Accounting and Financial Reporting

Like any risk management tool, a captive must be dynamic and change to meet the organization’s needs. We perform ongoing checkups to measure the captive’s performance relation to goals at the time on inception.  MSG will continue to act as the clients risk manager to ensure senior management’s needs are meet. We will stay abreast of any changes in the operational or risk profile of the firm, as well as changes in rates in the commercial insurance market, and in turn ensure the structure of the captive is amended appropriately.